China's central bank to prioritise green finance

Out-Law News | 23 Mar 2021 | 1:06 am | 1 min. read

Green finance will be prioritised by China’s central bank in the coming year and during the 14th five-year plan period, according to the bank governor Yi Gang.

The bank will take climate change into account when implementing its monetary policy and regulatory role in the future and will encourage financial institutions to support green investments with a market-based approach.

According to Yi, the government will be able to cover a small portion of the trillions of yuan in funding he estimates could be required to achieve China’s goal to have carbon emissions peak by 2030 and achieve carbon neutrality by 2060. It is therefore urgent to “establish proper public policy indicators to encourage market forces to fill the gap”.

John Yeap of Pinsent Masons, the law firm behind Out-Law, said: “China’s 14th five-year plan had set out a holistic approach to its energy transition, taking into account not just a reduction in carbon intensive power generation, but also demand side management, energy efficiency and industry and sectoral reforms. All these initiatives will require financial capital. As governor Yi Gang’s comment suggests, there will need to be mobilisation of not just public sector financing but also the private sector. In this regard, the advancements in China’s green finance taxonomy, including steps towards global convergence such as the removal of clean coal, as well as China’s leading role with the EU in delivering a common green taxonomy will greatly enhance the ability for private green capital to be deployed. ”

China will need to invest $6.4 trillion in new power generation capacity to achieve its carbon neutral goal in 2060, a Wood Mackenzie report said.

It will need 75% electricity demand increase, compared to base case, to replace fossil fuels for China to meet its carbon-neutral goal, with nuclear playing a role,  and with solar, wind and storage providing the primary energy solutions, it said.

In December, the China’s central bank outlined five measures for green finance in China.